tracking healthcare news and trends, in advocacy, reimbursement,
politics and the provision of care

October 25, 2011

Shareholders should demand patient access to Every Other Day incenter dialysis schedules

By Bill Peckham

This is Part Five, the last in a five part DSEN series making the case that Every Other Day (EOD) incenter dialysis schedules can be done (Part One); EOD schedules would improve clinical outcomes and support patient choice (Part Two); EOD schedules are implicitly supported by MAC/FIs (Part Three); EOD schedules would improve the clinic's finances and [edit; equivocation] may lower overall Medicare costs [edit] per person, per year (Part Four); EOD schedules would increase the clinic's value (Part Five).

Let me say from the outset that I don't usually spend a lot of time on dialysis industry equity prices and the concerns of shareholders. I own no stock related to the provision of dialysis. However, as Peter's comment today nicely illustrated, the owners of the capital need to be part of the discussion. I think the case that the seventh treatment would be financially lucrative, is strong. But that is not quite the same thing as value. Today's shareholder is most interested in value.

It is easy to think that value to a shareholder relies entirely on net income and ultimately it is true an equity share price has to correlate to net income. But it is net income as it is expected for that industry, for that business, for that business at this point in its life cycle. Dialysis as an industry is at the mature stage of its business life cycle. Most of the dialysis in the United States is provided by two large dialysis organizations that are for profit companies with equity shares available to the public and are generally understood to be at the mature stage of their business life cycles.

Being at the mature stage leads investors to have expectations of what it means to serve X number of patients or operate X number of facilities. This is why changes in insurance reimbursement are such a big deal to the dialysis industry - whether it is regular inflation adjustments to Medicare's payment (+), or two percent cuts to per treatment funding (-), or the new role of the exchanges (+/-?) it's a big deal because it changes the value of the companies. If average reimbursement goes down, for whatever reason, 100,000 patients are not going to be worth what 100,000 patients were worth the day before. In the world of equity traders what a patient is worth ultimately determines what a dialysis provider is worth.

The good news is we're worth quite a bit to these equity traders, over $85,000 a piece if recent sales are our guide (here, here). We're being sold not as people but as dialyzors. Buying/valuing an established dialysis provider would be like buying/valuing an airline. Sure you pay something for the planes but mostly you're paying for the right to the routes and the airline's frequent fliers. The units are the routes and dialyzors are the frequent fliers. To a shareholder the fact that dialyzors, unlike most frequent fliers, are largely captive of their proximate service provider is a feature not a bug. Providing dialysis and being in position to provide dialysis in the future, has equity value.

EOD schedules increase that value. If patients are worth $85,000 dialyzing six days every two weeks, they're worth more dialyzing seven. EOD schedules increase the value of the provider because they increase the expected value of serving a patient. EOD schedules advance shareholder interests.

Providing every other day incenter dialysis schedules would increase the value of the provider.